The phone will feature a touch screen and a slide-out, five-row keyboard, The New York Times reported Friday.

The phone will run on Google's Android software and, like Apple's iPhone, allow consumers to download new applications.

The phone requires a Federal Communications Commission review to ensure it meets industry standards. But, the companies plan to have the phone launched in time for the holiday shopping season, the Times reported.

The development is a "milestone" in part because, a Google versus Apple rivalry in the mobile phone market "forces others to innovate faster," Richard Wong a venture capitalist with Accel Partners told the Times.

The mobile phone industry is also seen as an area with huge growth potential.

"We can make more money on mobile than we do on the desktop, eventually," Google Chief Executive Officer Eric Schmidt said in a recent CNBC interview.